Joe Spak

Joe Spak inquired about the factors contributing to the lower Q4 margin guidance of 11.8%, especially given Q3 performance and historical sequential improvements. He also asked for clarification on the copper price impact on margin versus dollar earnings and about the growth opportunity in non-automotive areas like energy storage for both EDS and ECG segments.

Answer

Varun Laroyia (EVP and CFO, Aptiv) attributed the Q4 margin outlook to weaker volumes, a $15 million customer recovery timing shift from Q4 to Q3, and elevated copper prices. Kevin Clark (Chair and CEO, Aptiv) added that FX (Mexican peso) and copper had a year-over-year impact north of 100 basis points. Mr. Clark highlighted significant non-automotive opportunities in energy storage, robotics, and drones, noting these revenues are approaching $3 billion and growing mid-teens, with the software portfolio (Wind River) over $600 million and growing over 20%.

Joe Spak from UBS Group AG followed up on the discussion about investment in automation, asking when these investments are expected to start and how quickly the associated savings can be realized. He also sought clarification on the EV program cancellation charges mentioned for Q3, specifically if they were included in the results and if their recovery is factored into Q4 guidance.

Answer

Timothy Kraus (Senior Vice President and CFO, Dana Incorporated) explained that some EV investment dollars would be redeployed into automation, with a more deliberate and accelerated approach as cash flow improves post-transaction. Bruce McDonald (Chairman and CEO, Dana Incorporated) noted these are 'fairly short payback' investments. Regarding EV charges, Kraus confirmed that approximately $8-$10 million in costs related to canceled EV programs were booked in Q3 adjusted EBITDA, and Dana anticipates recovering these amounts in Q4, though they are non-contractual.

Joe Spak asked about the drivers of the strong implied Q4 free cash flow, key factors for 2025 free cash flow, and requested a refresher on the synergies between the Off-Highway division and the rest of Dana's business.

Answer

Timothy Kraus, SVP & CFO, explained that strong Q4 cash flow is typical due to business seasonality, driven by working capital and CapEx timing. He noted opportunities for further working capital improvements in 2025. James Kamsickas, Chairman & CEO, described the synergies as extensive, with the Power Technologies group supporting all three end markets (Light Vehicle, Commercial Vehicle, Off-Highway) with thermal, sealing, and electrification capabilities, making the businesses highly interconnected.

Joe Spak questioned the company's strategy for its debt tender offer, specifically which debt securities it would prioritize, and whether the anticipated lower interest expense was factored into the Q4 EPS guidance.

Answer

Andrew Lynch, Sensata Technologies' Chief Financial Officer, stated that due to the ongoing tender offer, specific details on preferred notes could not be disclosed. He noted that interest earned on cash roughly offsets the interest expense on the 2029 notes, so no material impact on Q4 net interest or EPS guidance is expected.

Joe Spak from UBS inquired about the specific debt securities Sensata would prioritize in its tender offer, given the higher cost of the five and seven-year notes, and whether the lower interest expense was factored into Q4 EPS guidance.

Answer

Andrew Lynch, Sensata Technologies' Chief Financial Officer, stated that due to the open tender, specific retirement preferences couldn't be disclosed. He noted that interest earned on cash roughly offsets interest on the 2029 notes, and no material impact on Q4 net interest was expected from the tender.

Joe Spak from UBS followed up on the European market commentary, asking if there was decontenting on higher-end vehicles in addition to segment shifts. He also sought clarification on the implied Q4 gross margin step-down, inquiring about factors like VOXX contribution and potential semi-tariffs. Lastly, Mr. Spak requested an update on Full Display Mirror (FDM) sales, especially given potential lower EV demand, and the outlook for 2026.

Answer

President and CEO Steve Downing confirmed that both changing vehicle mix and decontenting on higher-end vehicles are occurring in Europe as OEMs seek to lower costs, partly due to tariffs. He clarified that the Q4 gross margin step-down is primarily due to VOXX representing a higher percentage of total revenue and seasonally lower sales levels around the holidays, not structural cost issues. COO and CTO Neil Boehm reported strong FDM growth in Q3 and Q4, projecting 200,000-300,000 more units sold in 2025 than in 2024, with continued growth expected into 2026.

Joe Spak asked for details on the recent surround ADAS nomination, including the factors that led the customer to choose Mobileye, the level of integration, DXP involvement, and whether the rollout would be on new models or refreshes. He also requested an update on other advanced surround engagements and if SuperVision engagements are shifting towards surround.

Answer

Nimrod Nehushtan, EVP of Business Development and Strategy, explained that the decision was driven by the OEM's need for system simplification, consolidating sensors to the powerful IQ6 High chip for richer sensing and advanced ADAS requirements, at a reasonable added cost. He noted that the IQ6 High can also consolidate parking and driver monitoring systems. The rollout will be a combination of new architectures and existing ones. He clarified that base ADAS engagements are expanding to surround, rather than SuperVision engagements shifting, and Mobileye has many ongoing engagements, preferring to disclose nominations when concrete.

Joe Spak asked for color on the second Surround ADAS nomination, specifically what factors secured the win, the level of integration, and whether rollout would be on new models or refreshes. He also requested an update on other advanced Surround engagements and if SuperVision engagements are shifting towards Surround.

Answer

Nimrod Nehushtan, EVP of Business Development and Strategy, explained that the decision to upgrade from EyeQ6 Lite to EyeQ6 High was driven by the OEM's desire for consolidated ECU architecture, routing multiple sensors (cameras, radars) to the EyeQ6 High for richer sensing and user offerings like hands-free driving and advanced NCAP compliance, at a reasonable added cost. He noted that rollout would be a combination of new architectures and existing ones. Nimrod Nehushtan clarified that the trend is more about Base ADAS engagements expanding to Surround, rather than SuperVision engagements shifting, and that Mobileye has many engagements, preferring to disclose nominations when concrete.

Joe Spak inquired about any structural differences impacting incremental margins between the Communication Solution, Harsh Environment Solution, and Interconnect & Sensor Systems segments, and the potential for AISS to achieve 30%+ incrementals.

Answer

CFO Craig Lampo stated there are no structural limitations preventing any segment from expanding margins. He noted that the Communication Solution segment's high organic growth (74%) required some cost additions. He expressed pride in AISS achieving 20% operating margins and a 30% sequential conversion margin, confirming its capability for future expansion.

Joe Spak from UBS inquired about the specific drivers for the Q4-weighted EBIT, asking if it was due to production schedules or recovery timing. He also sought clarification on the net tariff impact in H2 and asked about Magna's opportunity regarding GM's announced production shifts back to the U.S.

Answer

CFO Patrick McCann explained the Q4 weighting is a combination of typical Q3 production shutdowns and the back-ended timing of commercial and tariff recoveries. He clarified that tariffs, which were a headwind in H1, are expected to be a net positive to EBIT in H2 due to the timing of recoveries from signed agreements. CEO Seetarama Swamy Kotagiri added that Magna is well-positioned to support OEM production rebalancing but is focused on capital discipline before making new investment decisions.